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Tension rises as US suspects Ukrainian rebels over jet crash - UPDATE

Suspicions that pro-Russian rebels downed a Malaysia Airlines jet rose on Friday, stoking tensions between Russia and the west and hitting the Russian stock market.

US President Barack Obama said Friday that Washington believed the Boeing 777 en route to Kuala Lumpur from Amsterdam was hit by surface-to-air missiles from an area inside Ukraine controlled by Russian-backed separatists.

Ukraine and Russia were pointing the finger at one another over the downing of flight MH17, which resulted in the deaths of all 298 people on board.

Ukraine's state security service said it intercepted phone conversations among pro-Russian rebels discussing the missile strike.

Rebel leaders denied any involvement and claimed a Ukrainian air force jet had brought down the Boeing 777, although some reports suggested they had admitted accidentally shooting it down.

The news came after the US imposed further sanctions against Russia to curb the Ukraine turmoil.

Russian shares fell 1.3% on Friday, the biggest loss in 12 weeks, as fears rose about further sanctions against Moscow, which has denied involvement in the jet crash.

European markets were mixed, but airline stocks held their own. Shares in British Airways and Iberia owner IAG, which has suspended all flights in Ukrainian airspace apart from a daily BA flight to Kiev, fell 0.8p to 329.9p but easyJet rose 7p to 1348p. Deutsche Lufthansa dropped €0.16 to €14.45 and Air France-KLM reversed €0.18 to €8.59.

Jasper Lawler at CMC Markets said markets were not sure which way to push amid uncertainty caused by the jet crash and Israeli attacks on the Gaza strip.

But he added: "Should the crash just be a horrific mistake, stocks markets may choose to switch attention back to earnings and interest rate expectations which to date have been supportive of higher prices."

World leaders called for an international investigation into who was to blame for the crash.

Russian President Vladimir Putin called for a ceasefire between the Ukrainian separatists and Kiev, but he said in an earlier statement that the "state over whose territory this occurred bears responsibility for this awful tragedy."

Kiev said it did not have the type of missile that hit the jet in the area where it was fired.

The incident will come as a huge blow to Malaysian Airlines only months after it lost its flight MH-370 flying from Kuala Lumpur to Beijing in March.

The carrier said in a statement on its website that it was diverting all its European flights on alternative routes.

It said the aircraft, which was powered by Rolls-Royce Trent 800 engines and had a clean maintenance record, did not make a distress call.

The 298 people on the flight included 154 of Dutch nationality, 43 Malaysians including 15 crew and two children, 27 Australians, 12 Indonesians including one child, nine Britons, four Germans, four Belgians, three Philippinos, one Canadian and 41 people whose nationalities were unconfirmed.

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